It was a year of solid accomplishments at Nexen. Operationally, we brought Buzzard on stream and increased production after royalties by 33%. Financially, we achieved net income of $1.1 billion or $2.06 per share and record cash flow of $3.5 billion or $6.56 per share as we benefited from the full impact of high oil prices. We also received a number of accolades for the way we do business including for our transparent disclosures and comprehensive sustainability reporting.

Our greatest achievement was the successful ramp up of Buzzard in the North Sea, which began producing early in 2007. Buzzard is one of the few mega projects worldwide in the last several years to be completed virtually on time and on budget. In its first year of operations, Buzzard achieved first quartile uptime performance for a new offshore facility in UK North Sea and was the single largest contributor to our 30% cash flow growth. Over its life, this world-class asset is expected to produce well over 600 million barrels of oil (260 million barrels net to us) and generate significant value for Nexen.

Despite success at Buzzard, we missed our 2007 production targets. In addition to modest timing delays at Buzzard, the start up at Long Lake was deferred almost six months and at Aspen in the Gulf of Mexico, we had disappointing results from development drilling. Going forward, we’ve already made a number of changes to improve project performance. At Buzzard, we’re focusing on continuously improving uptime so the platform consistently operates at full rates. At Long Lake, we are integrating the lessons from Phase 1 and other projects into our plans for subsequent phases. To support our strategic initiatives in the US, we have restructured our operations to focus on improving our capabilities in the deep-water Gulf of Mexico. With these changes underway, we are well positioned for a successful 2008.

This year we are excited to bring Phase 1 of Long Lake on stream. We are currently steaming the reservoir through all well pads and upgrader construction is more than 97% complete. Our oil sands strategy integrates steam-assisted-gravity-drainage (SAGD) and upgrading technology to produce the highest quality synthetic crude in the region. The patented process minimizes the need for purchased natural gas and provides us with an expected $10/bbl operating cost advantage over existing technologies. Phase 1 only develops about 10% of our oil sands leases. Once we gather enough operating history and receive clarity on proposed regulatory changes associated with climate change and royalty rates, we expect to sanction Phase 2. Future phases should follow on what will generally be a 3-year cycle. Over the next decade, we plan to grow our oil sands production to approximately 120,000 bbls/d. With our significant land position and cost advantage, it is easy to see that oil sands will generate value growth for many years.

Yet there’s more to develop and bring on stream in our global portfolio. In the North Sea, our Ettrick development is progressing well towards first oil mid 2008. We expect production to ramp up to approximately 30,000 boe/d (24,000 boe/d net to us) by year end. We have also identified a number of exploration opportunities in the immediate area that could be tied back to Ettrick and plan to evaluate at least two of these in 2008. Throughout the North Sea, we have hundreds of thousands of undeveloped acres, including nine licenses offshore Norway where we hope to drill our first well in 2009.

Offshore Nigeria, development of the world-class Usan discovery continues to move forward, and we expect to award major deep-water facilities contracts soon. As we develop Usan, we also plan to continue exploring the highly prospective acreage in the area.

We also have a vast inventory of diverse opportunities in North America. In the Gulf of Mexico, we have significant deep-water acreage and have contracted two new deep-water rigs scheduled to arrive in mid 2009 and 2010. In addition to our active exploration program here, we also plan to appraise our exciting discoveries at Knotty Head and Vicksburg to define their potential. In Canada, we are the first company developing coalbed methane (CBM) in Alberta’s Mannville coals where we have extensive land holdings. And in northeast British Columbia, we have a material land position in an emerging shale gas play and are currently testing this opportunity in what has the potential to be one of the most significant shale gas plays in Canada.

Looking at the company, I believe we have the talent and discipline to turn these opportunities into value-generating projects. I’m excited to see a new generation of employees at Nexen. They are young, energetic people who value integrity, diversity, innovative thinking and our rich portfolio of worldwide assets. Once again our employees named us one of the 50 Best Employers to work for in Canada. This is a great measure of our success in a world where human potential is truly the world’s richest resource. I thank all employees, our participative Board of Directors and committed shareholders who all see value in what’s next.

Charlie Fischer
President and CEO